Lenders are becoming more comfortable with the revenue risks associated with energy storage projects through several key developments:
- Establishment of Track Record: As early projects demonstrate successful operation over time, lenders are gaining confidence. The accumulation of historical data helps banks assess risk more effectively, leading to increased trust in battery technologies, especially lithium-ion, which has a well-established legacy dating back to the 1980s.
- Increasing Scale and Complexity: Energy storage projects are growing in scale, from 50-100 MW to capacities of 250-500 MW, reducing the risk perception and making them more bankable. Milestone deals like the Sheaf Energy Park in the UK have shown that project finance is viable for large-scale battery projects.
- Improved Revenue Models: Lenders are understanding and adapting to complex revenue streams from energy storage, which can include multiple markets such as the capacity market, wholesale market, balancing mechanisms, and ancillary services. While these pose more volatility, lenders are learning to navigate these risks by optimizing battery performance through advanced technologies like machine learning.
- Regulatory Support and Market Conditions: Favorable regulatory environments and market conditions are crucial. Recent developments in regulatory frameworks, such as the Federal Energy Regulatory Commission’s Order No. 841, have boosted confidence by providing clearer pathways for battery storage integration into power markets.
- Operational Optimizations: The use of sophisticated technology to optimize battery operation aligns with lender preferences for predictable cash flows. This includes ensuring batteries perform according to effective operating schedules, helping stabilize revenue streams and reduce risk.
In summary, lenders’ comfort with energy storage projects is growing due to the establishment of operational track records, the scaling up of projects, the development of complex revenue models, supportive regulatory frameworks, and operational optimizations.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-are-lenders-becoming-more-comfortable-with-the-revenue-risks-of-energy-storage-projects/
